Don’t knock China’s latest growth figures. They may be at their lowest level for more than a decade, but first quarter data shows the economy still grew 6.1% year on year.
That’s way ahead of any other country and marks a sharp fall in the rate at which growth has been decelerating in previous quarters. This is a real sign that the government’s $585 billion stimulus is starting to take effect.
It’s too early to call this a full turnaround yet, but the worst could be over for China’s economy. It could soon be time to start buying in. However, I believe there’s a smarter way to play the China story…
In fact, I’d like to tell you about one of the biggest untapped investment opportunities left on the planet. It’s a country that has absolutely colossal mineral resources. In fact, it sits on the world’s biggest untapped gold-copper resource.
And as I’ve explained here in The Right Side before, I believe the price of gold is set to rise sharply over the next few years. This country should do very well out of that. But it isn’t just gold and copper. It also has huge reserves of oil, uranium, tin, anthracite, or “smokeless coal”, and a whole range of other minerals.
Despite all of this, Mongolia is about as far off most investors’ radars as you can get.
But Mongolia isn’t on the edge of the world. Think about it for a second and you will quickly see that it’s at the very heart of the new global economic order. The country is right on China’s doorstep. No country is better-positioned to supply China’s enormous appetite for raw commodities. In fact, China already swallows-up 70% of Mongolia’s exports.
That makes Mongolia a better bet than almost any investment your broker is going to tell you about. As we’ve seen, China’s economy is still growing and Mongolia will still be feeding it.
Half the population of London and four times bigger than France
The other major factor Mongolia has going for it is its population. There are just 3 million people in the country. That’s half the population of London occupying an area the size of Western Europe! And half of them are still tent-dwelling nomads. What that means is that almost all the country’s vast resources are available for export. And as I’ve said, almost as fast as you can dig it out of the ground in Mongolia, China is ready to buy it.
Mongolia was under communist rule between 1924 and 1990. But that changed after the break-up of the USSR. After the end of Communist rule, the government quickly launched a privatization programme. Shares in state-owned companies were handed-out to the country’s population. Three years later, almost 500 companies had been privatized.
The country actually has a stock exchange. In fact, they set it up in 1991 after breaking-free of Russian influence. And the exchange now has more than 350 listed companies. About a fifth of those are mining companies.
The sheer scale of the country’s mineral wealth has created a massive economic boom. Mongolia’s economy has grown at almost 9% per year over the last five years. And foreign investors haven’t been blind to the huge opportunity here. Private equity investors pumped some $1 billion into Mongolia over the last two years. But they got their timing horribly wrong.
Commodities prices have tanked since the middle of last year as the global economy has stalled. The benchmark Reuters/Jefferies commodities index is now 52% below its peak. That’s driven the Mongolian stock exchange down by 63% over the same period.
That makes the opportunity in Mongolia even better
Private equity investors who piled-in at the height of the boom haven’t got much to smile about. At the same time, the Mongolian government probably wishes it had flogged-off more assets at last year’s peak prices. They let a golden opportunity slip-by.
But that is actually good for investors like you and me. Because that means that most of this country’s natural resources are still available. And we won’t have to pay inflated prices to get a piece of them. It’s just a question of finding the right way in.
Liquidity of individual Mongolian shares is a major concern. That’s why it’s worth considering playing the region with companies like the Canadian-listed Ivanhoe Mines Ltd (ticker: IVN). Ivanhoe is developing the huge Oyu Tolgoi copper and gold deposit in Mongolia.
But I’m not convinced this is the best way to get in, so the search continues. When I do find an opportunity in Mongolia with the right risk/reward profile, you can bet that you will be among the very first to hear about it.
Good investing,
Manraaj Singh
For The Right Side
Editor’s recommendation: As Chief Investment Strategist of Profit Hunter, Manraaj Singh is currently recommending investing in off-beat locations such as Vietnam, Iraq and West Africa. Click here to receive his latest in-depth recommendations on how to invest in these exciting regions and to be first in line when he releases his Mongolia play.
MARKET NOTES
A bullish sign from the UK “fear gauge”
BY THEO CASEY
There’s a new indicator that could just tell you what will happen next in the market…
It is the UK’s answer to the popular Chicago Board Options Exchange Volatility Index – or VIX for short. Traders call it the “fear gauge” because it effectively measures ‘fear’ in the market over the following 30 days...
Specifically, it measures how much premium investors are willing to pay for protective options on their portfolios. When it’s high, investors are scared.
In principle, the higher the VFTSE goes, the bigger the expected swing in the FTSE. And remember that stocks tend to be a lot more volatile on the downside than the upside.
You can see from the chart below the inverse relationship between the VFTSE (in red) and the FTSE 100 (in black). When fear goes up, the markets go down. This relationship highlights the significance of this indicator. The latest reading of 31 – down from a peak of nearly 80 last September – is a sign of the falling volatility, or fear, in the market today.
You can see from the chart that the trend is steadily ticking lower. This means investors are becoming less risk averse.
Understanding the VFTSE is to understand the mood of the market. And that mood is less bearish than it was just a few months ago. Investors are not paying so much in options premiums to protect their portfolios. That’s potentially good news for buyers, but even better news for those already in the market.
Editor’s note: Theo Casey breaks down the VFTSE and how to use it as a Buying signal in the latest issue of The Fleet Street Letter. Click here to receive this guide and all of The Fleet Street Letter’s current investment recommendations.
There is no Daily Reckoning today as Bill is out of email range in the mountains of South America.
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